Yahoo Finance Is VST Industries Limited’s (NSE:VSTIND) PE Ratio A Signal To Buy For Investors?
This article is intended for those of you who are at the beginning of your investing journey and want to better understand how you can grow your money by investing in VST Industries Limited (NSE:VSTIND).
VST Industries Limited (NSE:VSTIND) is currently trading at a trailing P/E of 25.2x, which is lower than the industry average of 25.2x. While this makes VSTIND appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. In this article, I will deconstruct the P/E ratio and highlight what you need to be careful of when using the P/E ratio. Check out our latest analysis for VST Industries
Breaking down the P/E ratio
P/E is often used for relative valuation since earnings power is a chief driver of investment value. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for VSTIND
Price-Earnings Ratio = Price per share ÷ Earnings per share
VSTIND Price-Earnings Ratio = ₹2966.2 ÷ ₹117.79 = 25.2x
The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to VSTIND, such as company lifetime and products sold. A quick method of creating a peer group is to use companies in the same industry, which is what I will do.
A few caveats
While our conclusion might prompt you to buy VSTIND immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to VSTIND. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with VSTIND, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing VSTIND to are fairly valued by the market. If this does not hold true, VSTIND’s lower P/E ratio may be because firms in our peer group are overvalued by the market.
What this means for you:
Since you may have already conducted your due diligence on VSTIND, the undervaluation of the stock may mean it is a good time to top up on your current holdings. But at the end of the day, keep in mind that relative valuation relies heavily on critical assumptions I’ve outlined above. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for VSTIND’s future growth? Take a look at our free research report of analyst consensus for VSTIND’s outlook.
Past Track Record: Has VSTIND been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of VSTIND’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
